HSBC 2001 Annual Report Download - page 72

HSBC HOLDINGS PLC
Financial Review (continued)
70
interest margin reflecting a change in asset mix to an
increase in the proportion of less risky but lower-
yielding assets. In Argentina, net interest income was
US$17 million lower than in 2000 and reflected
higher funding costs on rising interest rates. In
Panama, net interest income, following the
acquisition in the second half of 2000 of Chase
Manhattan Bank branches, was US$29 million
higher than in 2000.
Other operating income of US$919 million was
US$89 million, or 10.7 per cent, higher than in 2000
with an increase of US$109 million in fee income.
In Brazil, fee income increased by US$79 million, or
27.6 per cent, as the HSBC Brazilian operation
continued to develop wealth management business,
particularly asset management activities, and the
successful cross-sales of products to existing
customers through the retail branch network. Fees
from asset management grew by 48 per cent
compared to 2001 and at 31 December 2001 funds
under management stood at US$9.0 billion (US$3.9
billion of which arose from the acquisition of CCF
Brasil). In total, funds under management by our
Brazilian operations now rank fifth largest in Brazil.
Life insurance premia grew by 24 per cent and now
represent 36 per cent (34 per cent in 2000) of total
insurance premia. In Argentina, fee income was
US$30 million, or 32.6 per cent, higher than in 2000.
Initiatives taken to improve revenue mix were
reflected in higher levels of fees from credit cards
and asset management. In addition, fee income
reflected fees earned from being an arranger and
market-maker for Argentine government bond
auctions.
The increased contribution from fee income was
partly offset by lower levels of dealing profits.
Brazil’s dealing profits of US$20 million were US$7
million lower than in 2000 as losses were incurred on
interest rate trading positions as interest rates rose.
These losses were only partly offset by higher levels
of dealing profits on foreign exchange and debt
securities trading. Argentina reported dealing losses
of US$6 million compared to dealing profits of
US$16 million in 2000. This resulted from difficult
trading conditions as a result of volatility in foreign
exchange rates and losses on bond positions.
HSBC’s Argentine pensions, healthcare and life
insurance businesses also reported falls in income as
rising unemployment and collapsing economic
conditions led to a 6 per cent fall in healthcare
membership, reduced contributions to pensions funds
and a reduction in annuities business.
Operating expenses, excluding goodwill
amortisation, of US$1,549 million were US$152
million, or 10 per cent, higher than 2000. In Brazil
operating expenses of US$1,023 million, were higher
by US$141 million reflecting the acquisition of CCF
Brasil and restructuring provisions. As economic
conditions became less certain cost controls were put
in place to restrain operating expense growth with a
number of contracts renegotiated. Investment in
electronic distribution channels continued and HSBC
Bank Brasil’s internet and wireless banking services
expanded with a twofold increase in the number of
registered Internet Bank users since December 2000,
to 420,000 performing on average 1.9 million on-line
transactions a month. The newer Wireless Services,
which encompass e-mail, Cellular and Palm
Banking, have 24,000 users, a 40 per cent increase
since June 2001. In Argentina, cost controls were
rigorously enforced and the increase in operating
expenses of US$11 million was due mainly to the
write-down to market value of certain properties now
considered to be permanently impaired.
Provisions for bad and doubtful debts of US$940
million increased by US$768 million compared to
2000. In Brazil, the significant increase in
provisioning requirements of US$80 million
reflected a change in the lending portfolio mix.
Targeted growth in the high margin personal lending
portfolio led to an expected and corresponding
increase in delinquencies and provisioning levels
rose to reflect the underlying risks within the
consumer portfolio. In Argentina, provisions for bad
and doubtful debts rose substantially to reflect the
disastrous economic conditions and financial
uncertainties. This is reflected in the US$681 million
increase in the bad and doubtful debt provisions to
US$737 million compared to US$56 million in 2000.
Year ended 31 December 2000 compared with
year ended 31 December 1999
HSBC’s operations in Latin America contributed
US$324 million to HSBC’s cash basis profit before
tax in 2000, in line with 1999, which included
exceptional profits earned from the volatility in the
Brazilian financial markets in the first half of 1999.
On 1 August, HSBC Bank USA completed the
acquisition of Chase Manhattan's branch operations
in Panama. The 11 branches acquired added US$752
million of assets.
In Brazil, a more favourable economic